US Department of Labor Final Rule White Collar Exemptions

Yesterday, the U.S. Department of Labor published the final Rule “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees.”  The changes in this new rule are expected to affect over 4 million employees nationwide.  If you have employees who are classified as exempt employees or highly compensated employees, you may be affected. 

Important changes in the Rule are the following:

  • Increase in the minimum weekly wage for exempt employees.  The minimum weekly wage for an exempt employee will be the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (currently the South).  This results in a salary level of $913 per week, or $47,476 annually for a full-year worker.  In New York, this means an increase of $256.75 per week.  In other states, the increase is likely to be even greater. 
  • Ability to include certain types of income to meet the requirement.  Up to 10 percent of the salary requirement may be met with nondiscretionary bonuses, incentive payments, and commissions, provided these forms of compensation are paid at least quarterly.
  • Increase in the Highly Compensated Employee Wage.  The minimum annual salary for the exempt Highly Compensated Employee (HCE) is raised to the annualized weekly earnings of the 90th percentile of full-time salaried workers nationally.  This results in a salary level of $134,004 annually.  This is an increase of $34,004 annually.
  • Automatic Increases.  Both the exempt employee weekly wage and the HCE annual earnings will be updated every 3 years.  The Department of Labor estimates that at the next update (January 2020), the exempt salary level will likely rise to $984 per week ($51,168 per year), and the HCE total annual compensation will rise to $147,524.
  • There is no change to the job duties test for the Executive, Administrative, and Professional exemption

The Rule goes into effect on December 1, 2016.  That means employers must act now to prepare for the changes.  Employees who are currently classified as exempt but do not meet the new exempt salary threshold must either receive a pay increase or be re-classified as non-exempt and paid overtime for hours over 40 in a work week.  Please keep in mind that increases in pay can also mean increases in benefits.

Both New York and Federal law include stiff penalties for the failure to correctly pay wages.  Employers can be liable for up to 3 times the unpaid amount of wages (including improperly unpaid overtime).  Private lawsuits include awards of damages for attorney’s fees, making them attractive for Plaintiff’s attorneys.

We recognize that determining exempt status is often difficult.  We also know that reclassifying employees can lead to turmoil in the workplace.   We encourage you to call us with questions about the new rule, best practices for implementation of changes, or any other issues related to the classification of workers and payment of wages.

Article written by partners John C. Fish and Dawn J. Lanouette.  To contact Mr. Fish (jfish@hhk.com) or Mrs. Lanouette (dlanouette@hhk.com) please call 607-723-5341.

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